The farm economy will face continued uncertainty in 2019, according to American Farm Bureau Federation Chief Economist Dr. John Newton. Speaking during the 2019 American Farm Bureau Annual Convention and IDEAg Trade Show, Newton said many factors are pressuring the farm economy.
“On the grain side, we’ve had excellent weather for six or seven straight years now,” Newton said, which has led to a growing ending stocks-to-use figures for the three major crops — corn, soybeans and wheat. Trade uncertainty, particularly in the soybean markets, is only compounding the problem, he said.
“The other thing to think about is that while cash receipts were up 1.5 percent last year, costs of production were up 4.5 percent,” Newton said. “There’s still a lot of uncertainty on what 2019 farm income will be, but I think most people expect 2019 to be a challenging year given that we still have the retaliatory tariffs on a lot of our commodities.”
Lingering questions about how those trade issues might play out in the markets between now and harvest will make planting decisions difficult.
“Obviously, we still have to get a crop in the ground, we need to know what acres, how we are going to allocate corn and soybeans, and ultimately what those crop yields are going to be,” Newton said.
Market news stemming from the retaliatory tariff implemented by China in June 2018 will only worsen in 2019, according to Megan Nelson, AFBF’s economic analyst.
While overall soybean exports were down 42 percent year-to-date, cumulative soybean exports to China in the first 19 weeks of the new 2018-19 marketing year are down a whopping 98 percent.
Making up for those lost sales with later purchases will be extremely difficult and highly unlikely. According to Nelson, 77 percent of annual U.S. soybeans export sales normally occur by the end of January.
As a result, soybean’s one-year reign as king of planted acres is over, at least for 2019. Planted acres are predicted to drop 7.4 percent from 89.1 million acres to 82.5 million acres in 2019. Overall production, using a 50-bushel-per-acre (bpa) trend-line yield, will drop 11.1 percent, which helps to reduce ending stock-to-use figures from 23 percent to 17 percent. Also, there will be an estimated average price of $8.75 per bushel for the year, up from the previous year figure of $8.60.
Although not a major importer of U.S. corn, China still managed to impact the corn market in a different way. According to Nelson, China has revised its method for calculating corn stocks and stocks-to-use ratio calculation.
That revision resulted in an additional 8.2 billion bushels suddenly being added to global stockpile estimates, prompting USDA to raise their global stockpile estimate 106 percent, from 5.8 billion bushels to 12.2 billion.
China now reportedly sits on 67 percent of global corn stocks, the U.S. accounts for 15 percent, and the rest of the world holds 18 percent.
For 2019, U.S. corn acres are expected to increase 3.3 percent — from 89.1 million acres to 92 million — with total production, based on 176.5 bpa trend-line yield, increasing 2.1 percent.
Corn exports predicted to see a slight decline from the 2,450-million-bushel record level set in 2018, will be offset with increased consumption in feed and ethanol, with an increase in total use by 1.1 percent.
Ending stocks are predicted to drop 10 percent, resulting in an ending stocks-to-use figure of 11 percent, which is down significantly from the 2016-17 figure of 16 percent. The estimated average price of $3.90 per bushel for the year is up from last year’s figure of $3.60.
Annual global wheat production dropped 1 billion bushels — a 4 percent decrease in year-over-year production — due to major weather-related production losses in Russia and the European Union, according to Nelson.
As a result, she predicts U.S. wheat acres will increase 6.7 percent in 2019 to 51 million acres. Total production will increase 9.3 percent to 2,060 million bushels based on a trend-line yield of 47.8 bpa.
U.S. wheat exports are predicted to see a 2.4 percent increase. With a minor increase in domestic use, total use will increase 1.8 percent to 2,213 million bushels, resulting in a stocks-to-use ratio of 42 percent. This is compared to the 2017-18 figure of 56 percent. USDA estimates an average price of $5.20 per bushel in 2019, up from last year’s $5.15 figure.
Crops — What to Watch For
Soybeans — Lower soybean exports would further increase what is expected to be a record soybean carryout in 2018-19, potentially pushing prices even lower.
Corn — An acreage shift from soybeans to corn in 2019 is expected. Consumption is expected to remain strong and offer support to prices.
Wheat — Adverse weather affected European and Russian yields, cutting global production by 1 billion bushels. U.S. prices were higher and will contribute to increased U.S. planted wheat acres in 2019.